Section 54F of Income-Tax Act, 1961

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HomeBrud.gifIndian LawBrud.gifActsBrud.gifIncome-Tax Act, 1961Brud.gifSection 54F of Income-Tax Act, 1961

Section 54F of Income-Tax Act, 1961 deals with Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.

Contents

From the Act

(1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:

[Provided that nothing contained in this sub-section shall apply where—

(a) the assessee,—

(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or

(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or

(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and

(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.]

Explanation

For the purposes of this section,—

[***]

[***] “net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

(2) Where the assessee purchases, within the period of [two years] after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head “Income from house property”, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.

(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such new asset is transferred.]

[(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

(i) the amount by which—

(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds

(b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset,

shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and

(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.

Related Cases / Recent Cases / Case Laws

  • CIT v Kamal Wahal (2013) 351 ITR 4 (Delhi): Delhi High Court applied the rule of purposive construction and the object of enactment of Section 54F, has held that the assessee is entitled to claim exemption under Section 54F in respect of utilization of sale proceeds of capital asset for investment in residential house property in the name of his wife.
  • CIT v Ravinder Kumar Arora (2012) 342 ITR 38: The new residential house was acquired in the join names of the assessee and his wife, the Court held that the assessee is entitled for 100% exemption under Section 54F
  • February 2012: Indore Tribunal: Section 54F exemption not available where builder not even allotted plot within 3 years - [2012] 18 LNIN 33
  • December 2011: [2011] 16 LNIN 357 (Jaipur - Trib.): Where entire amount of sale consideration has been invested in specified bonds, capital gain would be exempt under section 54F and provisions of section 50C would not be applicable
  • December 2011: [2011] 16 LNIN 210 (Chandigarh - Trib.): Section 54F does not prescribe completion of construction of residential house and thrust of said section is on investment of net consideration received on sale of original asset and start of construction of a new residential house
  • April 2011: Agra - ITAT: Land sold after dismantling building will be entitled for exemption under section 54F/54EC - Where the assessee sold the land where the building was in existence after dismantling the building, it will not be entitled for the exemption under section 54 on the capital gain arising on the sale of that land; the assessee can get the exemption on the capital gain arising thereon either under section 54F provided he complies with the conditions stated therein or under section 54EC - [2011] 10 - 180

Other related Sections from the Act

  • Section 54G: Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area
  • Section 54GA: Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to any Special Economic Zone
  • Section 54H: Extension of time for acquiring new asset or depositing or investing amount of capital gain

Sections of the Indian Income Tax Act, 1961


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